Nine perspectives on quantitative easing

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Global Impact and Challenges of Unconventional Monetary Policies; IMF Policy Paper

The paper definies unconventional monetary policies (UMP) of two types:

  1. policies to restore market functioning and intermediation
  2. policies to provide support to economic activity at the zero lower bound.

The paper concludes:

UMP was especially successful in restoring market functioning and intermediation early in the global financial crisis, in response to acute shocks. Effects were unambiguously positive domestically and in other countries. UMP to support activity at the ZLB on short-term interest rates has reduced longterm rates and had positive effects on economic activity and inflation in UMP countries. Yet, continued UMP of this type is associated with risks: complacency in the reform agenda, financial stability, and central bank credibility. Overall, however, UMP have so far been beneficial on net both for UMP countries and on a global basis.

Stavros Niarchos Foundation Lecture:
Challenges for Emerging Economies' Central Banks in the Face of Quantitative Easing in Advanced Economies

A few points made by Agustín Carstens:

  • Unconventional monetary policies have been essential, and they have worked well so far.
  • But it is too early to declare victory. UMPs are not sustainable over the long run.
  • Recalling Anna Schwartz's words, Carstens warned that policy coordination is often a fair-weather phenomenon.
  • Many people have the impression that we have over-relied on monetary policy.
  • Some have called QE "competitive easing". An alternative label would be "competitive reserve accumulation".

Agustín Carstens' slides.

Testimony on the International Impacts of the Federal Reserve’s Quantitative Easing Program; Arvind Subramanian

QE has generally, and on balance, had a positive impact on emerging markets (EMs) and the global economy. But in some instances they have added to pressures and volatility for EMs, complicating macroeconomic management, and the impact has depended significantly on the global macroeconomic situation as well as the situation in particular countries.
QE1, for example, was unambiguously positive for the world and the EMs because it minimized, even eliminated, the tail risk of the near-collapse of the world economy in the aftermath of the Lehman Brothers crisis. QE2, on the other hand, occurred when the global macrofinancial context was less dire...

One of Subramanian's policy conclusions:

The onus of dealing with the impact of the Fed’s actions lies preponderantly with the
EMs themselves. They can insulate themselves from Fed actions by being less financially
integrated as China has chosen to do. They can also insulate themselves by following sound macroeconomic policies that would allow them to reap the benefits of, and appropriately respond to, capital inflows when the Fed eases monetary policy. And they can cope with the consequences of sharp outflows when the Fed tightens through a combination of macroeconomic (South Korea), reserve (India), and capital account management (Brazil) policies.

Positive-sum currency wars; The Economist

The whole point of lowering real interest rates is to stimulate consumption and investment which ordinarily leads to higher, not lower, imports. If this is done in conjunction with looser fiscal policy (as is now the case in Japan), the boost to imports is even stronger. Thus, QE’s impact on its trading partners may be positive or negative; it depends on a country’s trade intensity, the substitutability between its and its competitors’ products, and how sensitive domestic demand is to lower rates. The point is that this is not a zero sum game; QE raises a country’s GDP by more than any improvement in the trade balance.

Spillover Effects of Quantitative Easing on Emerging-Market Economies; Bank of Canada Review

ƒ QE has likely increased capital flows to EMEs, but these were also supported
by the relatively strong fundamentals in emerging markets. The overall impact of QE on EMEs was likely positive because of the beneficial trade and confidence effects stemming from stronger economic activity in the countries adopting QE, which then spilled over to
the rest of the world.

Don’t Waste the ECB’s Gift to Finance and Budget Ministers; Paolo Mauro

Since last summer, when budgets were being prepared, bond yields have declined by 100 basis points. The resulting budgetary savings are substantial, given that most euro area economies have public debts in excess of 75 percent of GDP. The savings will be especially large for countries that must refinance sizable amounts of debt over the next couple of years or that have a significant share of floating rate bonds. Italy, for example, could save as much as half a percent of annual GDP in debt service costs, and even more if low interest rates persist, as seems likely.

... The main benefits to the fiscal accounts will eventually come from stronger economic growth. Low interest rates will facilitate a recovery of private investment and a portfolio shift toward riskier assets. A higher nominal GDP growth rate will tend to reduce the government debt-to-GDP ratio. As economies regain strength, so will tax revenues, reducing fiscal deficits.

The ECB’s QE Is Working Well; Angel Ubide

The ECB has finally broken the QE taboo and has become a normal central bank, with QE being just another tool in its arsenal. The lack of contagion from the recent Greek turmoil is a good example of this confidence effect. Euro area bonds have again become risk-free assets, hopefully putting to rest the mistaken view that euro area countries “don’t have a central bank.”

... The ECB must stand by its commitment and continue doing QE until it can credibly and sustainably forecast inflation at 2 percent in 2 to 3 years, regardless of how big its balance sheet becomes. This is good progress, and the ECB should be congratulated for a good first step in the right direction. But we are not there yet.

Christian Noyer: ECB Bond Buying ‘Very Effective’ So Far

“Unconventional monetary policies are necessary but complex,” Mr. Noyer said at the Paris Europlace International Financial Forum held in New York. Because these policies are challenging, central banks that employ them must weigh the tradeoffs and risks, but at the same time, when circumstances call for action, central banks must not shy away from what must be done, he said.

What about the costs? Life is becoming difficult for pension funds; Spectator

Although most commentators assume low interest rates are good for the economy, there are negative impacts that have so far been overlooked or ignored. In particular, the low-bond-yield environment has damaged pensions

Four China items of the day

1: Chun Chang, Kaiji Chen, Daniel F. Waggoner, Tao Zha: Trends and cycles in China's macroeconomy: The labor share declined from 53% in 1997 to 47%...

Rethinking Macro Policy: Ken Rogoff's remarks

Rogoff's remarks at this year's IMF Spring Meeting start at about 19:30. Many points are healthy food for thought, I just quickly wrote down five...